SA on brink of recovery, but not a great one - Investec director

Cape Town - SA is on the brink of recovery - not a great recovery, but better than hovering near zero growth, Investec director Jeremy Gardiner said at an information session on Friday.

"The world is looking much better this year than last year, including South Africa. The good news is the whole world is recovering and that will be good for emerging markets coming back in favour," said Gardiner.

"The economic outlook is positive, but there are risks to portfolios from Trump, Brexit and Zuma, among others. The Fed raising interest rates could also put pressure on bond prices."

READ: How Trump could benefit Africa

In his view, inflation in SA will slow by mid-year and that will lead to interest rates dropping at the end of the year.

"SA should avoid a ratings downgrade if politics behave. Zuma will still make a move on Treasury, though, but it will not be as simple as he thinks. We have nine months of noise to get through until the Zuma succession," said Gardiner.

As for the rand, he said it could come back a lot more - if there is no political interference.

"But remember 70% of the rand's performance is determined by the view of emerging markets. Emerging markets are fully going forward. It will be more positive for emerging markets. The 2017 view of SA's CEOs is that they are feeling confident, but worried about skills shortage," said Gardiner.

Dramatic year

At the same time he cautioned that 2017 could be a dramatic year in SA with a critical crescendo from the Zuma succession and ratings at the end of the year.

"In SA there will be in-fighting over the succession of Zuma. We will see so much noise from factions and fake news. We could also see unpredictable behaviour from Zuma. Therefore, 2017 could be a dramatic year in SA with a critical crescendo from the succession and ratings at the end of the year," said Gardiner.

On top of that, he warned that SA is not creating enough taxpayers.

"Five million paying tax for 65 million is not sustainable. And what about the R45bn wasted last year?" he asked.

He also pointed out that one can call ratings agencies what you like, but it is not irrelevant what they say. Their ratings determine investments.

On the international front, Gardiner joked that "politics will Trump economics this year" - in other words, the unexpected can happen.

"I am not anti-Trump. I understand why he got in, but I have not seen enough yet to make me pro-Trump. Unpredictable America is seen as the biggest global risk for 2017 by Time," he said.

"Trump controls a quarter of the world economy, so if he goes into a 'laager' it is relevant for us in SA. What will he do? He intends to grow the military, cut foreign aid (that's us) and cut environmental spend. His increased spending could be good for us, though."

Regarding Brexit, Gardiner's view is that it will be a hard exit.

"It will be like any divorce, it will be a battle over money and access," he said.

Lastly, he thinks China could become the new "headmaster" of the world in the place of the US.